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Smith Micro Announces Improved Second Quarter Results and Third Consecutive Quarter of Revenue Gains

Jul 25, 2000

Aliso Viejo, CA -- Smith Micro Software, Inc. (Nasdaq: SMSI), a developer and marketer of a wide range of software and service solutions for the Internet and wireless markets, today announced its third consecutive quarter of revenue increases. Smith Micro's net loss also decreased during the quarter.

Net revenues of $3.2 million for the second quarter ended June 30, 2000 compare with net revenues of $3.4 million for the second quarter ended June 30, 1999 and net revenues of $3.1 million for the first quarter of 2000. The decline in sales over the prior year period is attributed primarily to the previously reported step-down in the company's fax modem software legacy business, which declined from $620,000 in the 1999 quarter to $213,000 in this year's quarter. Gross margins of 82.7% were the same as recorded in the prior year's quarter, however, the company's net loss decreased to $632,000 from a net loss of $743,000 in 1999's second quarter due to the company's continuing emphasis on cost controls.

"This year's second quarter, and indeed the first half, was one of continued progress on our strategic initiatives and new product launches," said William W. Smith, President and CEO of Smith Micro. "Over the last year, we have proven that our business model of innovation, acquisition and cost containment is successfully transforming our company into a provider of software solutions for the very high growth Internet and wireless markets. In addition to creating the important possibility of substantial on-going growth for Smith Micro, we are well along toward achieving the goal of a more diversified product and revenue mix."

During the quarter, Smith Micro closed two key sales agreements and launched two important new products. In May, the company announced a software development agreement with LG Information and Communications, Ltd. of Korea under which Smith Micro will develop and produce software products providing wireless Internet PC access for LG cellular products. In June, Smith Micro closed an agreement with Audiovox Communications Corporation to bundle Smith Micro's QuickLink Mobile 2000 software with Audiovox's Data Accessory Kit for their new line of cellular telephones. The Smith Micro product will enable cell phone users to make wireless PC connections to the Internet.

The most significant new products released during the quarter were Web Catalog 4.0, the latest version of the company's e-commerce and Web publishing platform, and QuickLink Mobile 2000, a product that allows users to connect their laptop computers to the Internet over a cellular telephone line.

Beginning in the March 2000 quarter, Smith Micro began reporting net revenues from each of the company's three operating divisions. For the quarter ended June 30, 2000, Smith Micro's Internet Solutions Division reported net revenues of $821,000 compared to $161,000 in the 1999 quarter; its Macintosh Division reported $318,000 compared to $665,000 in the second quarter of last year; and the Wireless & Broadband Division reported $1.9 million, unchanged from the prior year's quarter.

Operating expenses as a percentage of net revenues declined 6.1% in the second quarter of 2000 compared to the second quarter of 1999. The reduction resulted from reduced sales and marketing expenses, primarily due to lower promotional expenditures. Lower G&A expense was recorded for the 2000 quarter because administrative costs incurred for the acquisition completed by Smith Micro in the second quarter of 1999 were non-recurring. Research and Development expense increased 1.1% in the quarter, reflecting the company's continuing emphasis on new product development.

Smith Micro recorded a net loss in the quarter ended June 30, 2000 of $632,000, or $0.04 per share, compared with a net loss of $743,000, or a loss of $0.05 per share in the 1999 quarter.

At June 30, 2000, the company had no long-term debt, cash of approximately $8.3 million and working capital of $10.6 million.

"The last year has seen Smith Micro transition away from a singular reliance on one principal product line toward a much more diversified suite of products that, we believe have much brighter growth prospects," remarked Mr. Smith. "Through the consolidation of the two acquisitions of 1999, we have improved our expense ratios and are now in a position to leverage the synergies that exist between each of our operating divisions. We have developed key technologies and products, we now operate in multiple distribution channels, and we have established relationships with blue chip partners that have the potential to create additional leverage in our business. We believe these factors will continue our sales momentum, and when combined with strong gross margins and a healthy balance sheet, we should see rapid progress toward profitability in the second half of this year."

Smith Micro will hold an investor conference call to discuss the company's results at 4:30 p.m. eastern on July 25, 2000. Investors will have the opportunity to listen to the conference call over the Internet through Vcall at http://www.vcall.com. To listen to the live call, please go to the web site at least fifteen minutes early to register, download, and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available shortly after the call.

About Smith Micro Software

Smith Micro Software, headquartered in Aliso Viejo, California, is a developer and marketer of eCommerce and communication software products and services. The company designs integrated, cross-platform, easy-to-use software for personal computing and business solutions around the world. With a focus on the Internet, wireless, and broadband technologies, the company's products enable eCommerce, Internet communications (voice-over-IP), video conferencing, wireless communications and network fax, along with traditional computer telephony. Smith Micro's complete line of products is available through direct sales, retail stores, value-added resellers (VARs) and original equipment manufacturers (OEMs). Smith Micro's common stock trades on The Nasdaq Stock Market® under the symbol SMSI. For more information, contact Smith Micro at (949) 362-5800.

This release contains forward-looking statements that involve risks and uncertainties and actual results may differ materially from those suggested by the forward-looking statements. Among other things, the company's attempt to develop new markets in eCommerce, Mac and wireless markets involves the development of new products for markets where the company has relatively little experience and where competition is keen. Although the company anticipates that these new markets will generate revenue growth compared to prior years, if the company's product line takes longer to develop then currently anticipated and/or if the company's competition develops products that gain market acceptance quicker, that opportunity will be lost or delayed. Other important factors which could cause actual results to differ materially from those in the forward-looking statements are economic, competitive, governmental and technological factors affecting the company's operations, markets, products, services and prices, as well as other factors detailed in the company's filings with the Securities and Exchange Commission including its recent filings on Forms 10-K and 10-Q.

Smith Micro and the Smith Micro logo are trademarks or registered trademarks of Smith Micro Software, Inc. All other trademarks and product names are the property of their respective companies.

For more information on Smith Micro Software, Inc., via fax at no charge, please call
1-800-PRO-INFO and enter ticker symbol SMSI.

FINANCIAL TABLES FOLLOW

SMITH MICRO SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS *
(in thousands, except share and per-share amounts)

 Second Quarter Ended
June 30
(unaudited)
 20001999
Net revenues$3,222$3,362
Cost of revenue557583

Gross profit2,6652,779

Operating expenses:
   Selling and marketing1,4621,643
   Research and development1,004993
   General and administrative940991

Total operating expenses3,4063,627

Operating loss(741)(848)

Interest income, net115105
Loss before income taxes(626)(743)
Income tax expense (benefit)6-
Net Loss$(632)$(743)

Net loss per basic and diluted share$(0.04)$(0.05)

Weighted average shares outstanding, basic and diluted15,89515,462

*Includes the results of Pacific Coast Software for all periods presented. Pacific Coast Software, acquired by Smith Micro in September, 1999, was accounted for as a pooling of interests.

SMITH MICRO SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS *
(in thousands, except share and per-share amounts)

 Six Months Ended
June 30
(unaudited)
 20001999
Net revenues$6,296$6,398
Cost of revenue1,1701,316

Gross profit5,1265,082

Operating expenses:
   Selling and marketing2,8413,261
   Research and development1,9411,929
   General and administrative1,8171,907

Total operating expenses6,5997,097

Operating loss(1,473)(2,015)

Interest income, net227239
Loss before income taxes(1,246)(1,776)
Income tax expense (benefit)45(356)
Net Loss$(1,291)$(1,420)

Net loss per basic and diluted share$(0.08)$(0.09)

Weighted average shares outstanding, basic and diluted15,82815,268

*Includes the results of Pacific Coast Software for all periods presented. Pacific Coast Software, acquired by Smith Micro in September, 1999, was accounted for as a pooling of interests.
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